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Reform of the German taxation of investment funds

Proposals are based on a fundamentally new concept for taxing investment funds and their investors.

After the German Ministry of Finance ("FMF") presented its "discussion draft bill" (InvStG-E) for a comprehensive reform of the German Investment Tax Act on 21 July 2015, a new draft statute for the Reform of Investment Taxation was published on 17 December 2015. The government is of the opinion that the current German investment tax law is in need of another overhaul after the German fund taxation had already been revised substantially at the end of 2013. The reasons for adjusting the current German law include its potential infringement of EU law and its high expenditure and administration effort.

The draft bill is based on a fundamentally new concept for the taxation of investment funds and their investors. For the taxation of open-ended funds (retail funds), a completely new non-transparent system of taxation is planned which mostly builds on lump-sum methods and typecasts, moreover, it shows elements of a "target income tax" on non-realised earnings. For closed-ended investment funds (special funds), the previous, mostly transparent regime of taxation will remain even though there will be considerable changes and rearrangements. These include an option for "transparency taxation" which is bound to give rise to further complexity.

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